How to Calculate Margin in Summary | 9 Exercises

Application: Gold Sparkle Jewelry

States :

The Éclat d'Or jewelry store wants to analyze the profitability of its new gold bracelets. Each bracelet is purchased at €250 excluding tax (HT) and is sold at €380 excluding tax. With the increase in raw material costs, the company is looking to maximize its margin on this product range and is studying the impacts of different pricing strategies.

Work to do :

1. Calculate the unit margin in euros on the sale of a bracelet.
2. Determine the margin rate of these bracelets and comment.
3. If Éclat d'Or decides to apply a markup rate of 30%, what should the selling price excluding tax be?
4. What would the overall margin be if the company sold 200 bracelets at this new price?
5. Evaluate the strategic impacts of a 5% increase in purchasing cost on unit margin.

Proposed correction:

1. To calculate the unit margin, use the formula: Unit margin = PV HT – PA HT.

   By replacing, Unit margin = €380 – €250 = €130.

   The unit margin on a bracelet is €130.

2. The margin rate is calculated using the formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Let's substitute the values: Margin rate = ((380 – 250) ÷ 250) x 100 = 52%.

   The margin rate of 52% indicates good profitability on these bracelets.

3. For a markup rate of 30%, use the formula: PV HT = PA HT ÷ (1 – Markup rate).

Let's replace the values: PV HT = 250 ÷ (1 – 0,30) = €357,14.

The new selling price excluding VAT should be €357,14 to achieve a mark-up rate of 30%.

4. The overall margin is calculated by multiplying the unit margin by the quantity sold.

   Unit margin at €357,14 is €107,14 (€357,14 – €250).

   Overall margin = €107,14 x 200 = €21.

   The overall margin would be €21 if 428 bracelets were sold at the new price.

5. If the purchase cost increases by 5%, the new PA excluding tax is €250 x 1,05 = €262,50.

   New unit margin = €357,14 – €262,50 = €94,64.

   A 5% increase in the purchase cost reduces the unit margin to €94,64, which negatively impacts profitability.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (Market rate)	PA HT ÷ (1 – Mark rate)
Overall margin	Unit margin x Quantity sold

Application: Page Turners Bookstore

States :

The bookstore Page Turners is offering a new limited edition of novels sold at €24 including tax with a VAT of 5,5%. It bought each copy at a price of €15 excluding tax. To assess the profitability of this operation, it is considering different pricing strategies.

Work to do :

1. Calculate the selling price excluding tax of the novel.
2. Determine the unit margin in euros.
3. What is the markup rate if the selling price excluding tax remains at €22,75?
4. Estimate the overall margin if the bookstore sells 500 copies.
5. Discuss the impact on unit margin if the selling price is increased by 10%.

Proposed correction:

1. To calculate the PV excluding VAT, use the formula: PV excluding VAT = PV including VAT ÷ (1 + VAT).

   Let's replace the values: PV HT = 24 ÷ 1,055 = €22,75.

   The sales price excluding tax is €22,75.

2. The unit margin in euros is calculated by subtracting the purchase cost from the selling price excluding tax.

   Unit margin = €22,75 – €15 = €7,75.

   The unit margin on each novel is €7,75.

3. The markup rate is given by the formula: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.

Let’s calculate: Markup rate = ((22,75 – 15) ÷ 22,75) x 100 = 34,07%.

The mark rate stands at 34,07%.

4. For overall margin, multiply unit margin by number of units sold.

   Overall margin = €7,75 x 500 = €3.

   The overall margin would be €3 for 875 copies sold.

5. With a 10% increase, the new PV excluding tax is €22,75 x 1,10 = €25,03.

   New unit margin = €25,03 – €15 = €10,03.

   Increasing the selling price by 10% would improve the unit margin to €10,03.

Formulas Used:

Title	Formulas
PV HT	PV incl. VAT ÷ (1 + VAT)
Unit margin	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
Overall margin	Unit margin x Quantity sold

Application: Coffee Flavors from Elsewhere

States :

Café Les Saveurs d'Ailleurs wants to analyze the profitability of its new dessert, Tiramisu Exotiques, sold at €8 including tax with a VAT of 10%. The production cost is €4,50 excluding tax. The café is considering a potential price adjustment to maximize its profits.

Work to do :

1. Calculate the selling price excluding tax of the dessert.
2. Determine the unit margin made on each dessert sold.
3. What is the current margin rate?
4. If the café wants a margin rate of 60%, what selling price excluding tax should be charged?
5. Analyze the strategic impact of a €0,50 reduction in production costs on the margin.

Proposed correction:

1. The selling price excluding VAT is calculated by: PV excluding VAT = PV including VAT ÷ (1 + VAT).

   PV HT = 8 ÷ 1,10 = €7,27.

   The selling price excluding tax for the dessert is €7,27.

2. The unit margin is the difference between the selling price excluding tax and the production cost.

   Unit margin = €7,27 – €4,50 = €2,77.

   The unit margin per dessert sold is €2,77.

3. The margin rate is given by: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((7,27 – 4,50) ÷ 4,50) x 100 ? 61,56%.

The current margin rate is 61,56%.

4. To achieve a margin rate of 60%, reconfigure the formula: PV HT = PA HT x (1 + Margin rate).

   PV excluding VAT = 4,50 x 1,60 = €7,20.

   The café should adjust the selling price excluding tax to €7,20 for a margin rate of 60%.

5. With a decrease of €0,50, the new production cost is €4.

   New unit margin = €7,27 – €4 = €3,27.

   Reducing the production cost to €4 would increase the unit margin to €3,27, thereby strengthening profitability.

Formulas Used:

Title	Formulas
PV HT	PV incl. VAT ÷ (1 + VAT)
Unit margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (Margin rate)	PA HT x (1 + Margin rate)

Application: Telephony Connect's

States :

Connect's, a recently launched telephone company, offers state-of-the-art wireless headphones at a price of €120 excluding VAT. It buys them from its supplier at €85 excluding VAT. Concerned about the competitiveness of its offer, it evaluates different pricing strategies.

Work to do :

1. Calculate the unit margin on each pair of headphones.
2. How much is the markup rate for this offer?
3. If Connect's wants to offer a discount and achieve a 25% margin, what should the new selling price excluding VAT be?
4. Estimate the overall margin if the company sells 800 pairs at this discounted price.
5. Consider whether a reduction strategy makes sense in the face of increasing other costs.

Proposed correction:

1. The unit margin is the direct subtraction between the selling price excluding tax and the purchase price.

   Unit margin = €120 – €85 = €35.

   Each pair of headphones brings in a unit margin of €35.

2. To determine the markup rate, apply: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.

   Markup rate = ((120 – 85) ÷ 120) x 100 = 29,17%.

   The mark rate reached 29,17%.

3. Consider a scenario where the margin rate is 25%: PV HT = PA HT x (1 + Margin rate).

PV excluding VAT = 85 x 1,25 = €106,25.

The selling price excluding tax should be adjusted to €106,25 for a margin rate of 25%.

4. Better understand the overall margin: Overall margin = Unit margin x Quantity sold.

   New unit margin = €106,25 – €85 = €21,25.

   Overall margin = €21,25 x 800 = €17.

   The overall margin would be €17 if 000 pairs were sold at this price.

5. If Connect's reduces its price, it will have to compensate for the increase in other charges.

   A price reduction driven by innovation, loyalty or a range extension is essential.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100
PV HT (Margin rate)	PA HT x (1 + Margin rate)
Overall margin	Unit margin x Quantity sold

Application: Chic & Elegance Fashion

States :

The company Mode Chic & Élégance wants to launch a new range of silk scarves sold at €45 including tax, with a VAT of 20%. The purchase price per scarf is €28 excluding tax. They want to evaluate the attractiveness of their current pricing strategy.

Work to do :

1. Calculate the selling price excluding tax of these scarves.
2. What is the unit margin made on each scarf sold?
3. Determine the markup rate of these scarves.
4. If the brand decides to readjust its price excluding tax to guarantee a unit margin of €20, what would the new selling price excluding tax be?
5. Discuss the possibility and impact of reducing the purchasing cost by 10% on profitability.

Proposed correction:

1. The selling price excluding VAT is calculated by subtracting the VAT: PV excluding VAT = PV including VAT ÷ (1 + VAT).

   PV HT = 45 ÷ 1,20 = €37,50.

   The sales price excluding tax is €37,50.

2. To calculate the unit margin, subtract the purchase price from the selling price excluding VAT: Unit margin = PV excluding VAT – PA excluding VAT.

   Unit margin = €37,50 – €28 = €9,50.

   The unit margin per scarf sold is €9,50.

3. The markup rate is defined as: Markup rate = ((PV HT – PA HT) ÷ PV HT) x 100.

Markup rate = ((37,50 – 28) ÷ 37,50) x 100 = 25,33%.

The mark rate stands at 25,33%.

4. Consider a readjustment to reach a margin of €20: Unit margin = PV excluding tax – PA excluding tax.

   PV excluding tax = €28 + €20 = €48.

   For a unit margin of €20, the selling price excluding tax must be €48.

5. A 10% reduction on the purchase cost reduces the PA excluding tax to €25,20 (€28 x 0,90).

   The new unit margin with a PV excluding tax at €37,50 is €12,30 (€37,50 – €25,20).

   A reduction in purchasing cost increases the unit margin and thus significantly strengthens profitability.

Formulas Used:

Title	Formulas
PV HT	PV incl. VAT ÷ (1 + VAT)
Unit margin	PV HT – PA HT
Brand taxes	((PV HT – PA HT) ÷ PV HT) x 100

Application: ImmoPlus Real Estate Agency

States :

The ImmoPlus real estate agency is preparing a financial analysis for a building that it is selling for €850 including tax, with a VAT of 000%. The purchase cost of this building was €20 excluding tax. In order to guide their future investments, they wish to assess the profitability of this transaction.

Work to do :

1. Calculate the selling price excluding tax of the building.
2. Determine the unit margin made on this transaction.
3. What is the margin rate applied for the sale of this building?
4. Explore the impact of a 5% increase in purchase cost on unit margin.
5. From a strategic perspective, discuss the relevance of selling to an institutional client at a 5% discount.

Proposed correction:

1. Convert the sales price including tax to excluding tax: PV excluding tax = PV including tax ÷ (1 + VAT).

   PV excluding tax = 850 ÷ 000 = €1,20.

   The sales price excluding tax is €708.

2. The unit margin is the difference between the selling price excluding tax and the purchase price: Unit margin = PV excluding tax – PA excluding tax.

   Unit margin = €708 – €333,33 = €650.

   The unit margin achieved is €58.

3. The margin rate is given by: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

Margin rate = ((708 – 333,33) ÷ 650) x 000 = 650%.

The margin rate on this real estate transaction is 8,97%.

4. If the purchase cost increases by 5%, the new PA excluding tax is 650 x 000 = €1,05.

   New unit margin = €708 – €333,33 = €682.

   A 5% increase in the purchase cost considerably reduces the unit margin to €25.

5. Selling to an institutional client involves reducing the PV excluding tax by 5%, i.e. 708 x 333,33 = €0,95.

   New margin = €672 – €916,66 = €650.

   Although a 5% discount reduces margin, it can be a viable strategy if a quick sale or future partnerships are considered.

Formulas Used:

Title	Formulas
PV HT	PV incl. VAT ÷ (1 + VAT)
Unit margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100

Application: BioNature Market

States :

The BioNature chain of stores wants to expand its distribution of homemade food products. A new product, an organic granola, is sold for €8 excluding VAT. Its production cost is €5,50 excluding VAT. BioNature is evaluating pricing options to differentiate itself on the market.

Work to do :

1. Calculate the unit margin achieved by BioNature for granolas.
2. Determine the markup rate of the granolas.
3. If BioNature wants to apply a markup rate of 40%, what will the selling price excluding tax be?
4. Consider the impact of a €0,50 decrease in production cost on the margin.
5. Discuss the strategic implications of lowering the selling price to €7 to increase market share.

Proposed correction:

1. The unit margin is the difference between the selling price excluding tax and the production cost: Unit margin = PV excluding tax – Cost.

   Unit margin = €8 – €5,50 = €2,50.

   The unit margin from granolas is €2,50.

2. Let’s calculate the markup rate: Markup rate = ((PV HT – Cost) ÷ PV HT) x 100.

   Markup rate = ((8 – 5,50) ÷ 8) x 100 = 31,25%.

   The markup rate on organic granola is 31,25%.

3. For new pricing with a 40% markup, use: PV excl. VAT = Cost ÷ (1 – Markup).

PV excluding tax = 5,50 ÷ (1 – 0,40) = €9,17.

The new selling price excluding VAT should be €9,17 to achieve a mark-up rate of 40%.

4. If the production cost is reduced by €0,50, the new cost is €5.

   New unit margin = €8 – €5 = €3.

   Cost reduction will increase unit margin to €3.

5. By lowering the selling price to €7, the new unit margin is €7 – €5,50 = €1,50.

   This pricing strategy could boost sales and improve competitiveness while reducing unit margin.

Formulas Used:

Title	Formulas
Unit margin	PV HT – Cost
Brand taxes	((PV HT – Cost) ÷ PV HT) x 100
PV HT (Market rate)	Cost ÷ (1 – Markup Rate)

Application: Sprint Sports Equipment

States :

The company Équipements Sportifs Sprint wants to evaluate the profitability of its new footballs, sold at €35 excluding VAT. The purchase price of each ball is €22 excluding VAT. Sprint is analyzing whether a price adjustment is necessary to increase its margins.

Work to do :

1. Calculate the unit margin per balloon sold.
2. Determine the margin rate for these soccer balls.
3. If Sprint wants to maintain a 30% markup, what would be the optimal selling price excluding tax?
4. Consider the impact of a 10% increase in purchase cost on margin.
5. Analyze the strategic implications of a price drop to €33 to expand the market.

Proposed correction:

1. The unit margin is calculated by: Unit margin = PV HT – PA HT.

   Unit margin = €35 – €22 = €13.

   The unit margin made per balloon sold is €13.

2. To determine the margin rate: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Margin rate = ((35 – 22) ÷ 22) x 100 = 59,09%.

   The margin rate on these balloons is 59,09%.

3. If the goal is to maintain a 30% markup rate, reconfigure with: PV HT = PA HT ÷ (1 – Markup Rate).

PV excluding tax = 22 ÷ (1 – 0,30) = €31,43.

The optimal selling price excluding VAT for a markup rate of 30% would be €31,43.

4. A 10% increase in cost would bring the PA excluding tax to €24,20.

   New unit margin = €35 – €24,20 = €10,80.

   This increase would reduce the unit margin, making a possible price adjustment or cost reduction essential.

5. With a price lowered to €33, the new unit margin would be €33 – €22 = €11.

   This decline could boost sales and market penetration, but it requires a cost-benefit analysis.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (Market rate)	PA HT ÷ (1 – Mark rate)

Application: Electr'Hom

States :

Electr'Hom, a manufacturer of eco-friendly lighting fixtures, sells its lamps at €60 excluding VAT. Each lamp has a production cost of €40 excluding VAT. The company is exploring adjustments to increase its profit margin.

Work to do :

1. Calculate the unit margin for each lamp sold.
2. What is the current margin rate for these lamps?
3. If Electr'Hom wants to achieve a markup rate of 35%, what should the selling price excluding tax be?
4. Evaluate the implications of a €5 reduction in production cost on the margin.
5. Consider whether to introduce an introductory price of €55 to attract new customers.

Proposed correction:

1. The unit margin is deduced by subtracting the production cost from the selling price excluding tax.

   Unit margin = €60 – €40 = €20.

   Each lamp provides a unit margin of €20.

2. To determine the margin rate, use the following formula: Margin rate = ((PV HT – PA HT) ÷ PA HT) x 100.

   Margin rate = ((60 – 40) ÷ 40) x 100 = 50%.

   The margin rate for these lamps is currently 50%.

3. To ensure a 35% markup rate, use: PV HT = PA HT ÷ (1 – Markup rate).

PV excluding tax = 40 ÷ (1 – 0,35) = €61,54.

For a markup rate of 35%, the selling price should be €61,54.

4. If the production cost drops by €5, the new cost is €35.

   The unit margin with a selling price of €60 would be: €60 – €35 = €25.

   This reduction would significantly improve profitability by increasing the unit margin to €25.

5. By launching the lamp at €55, the unit margin would be reduced to €15.

   This strategy could attract new market segments, but it is crucial to assess profitability and public reception.

Formulas Used:

Title	Formulas
Unit margin	PV HT – PA HT
Margin rate	((PV HT – PA HT) ÷ PA HT) x 100
PV HT (Market rate)	PA HT ÷ (1 – Mark rate)